POLITICAL uncertainty in Greece is once again threatening to plunge the eurozone into crisis.
Prices of Greek stocks plunged 15 per cent on Tuesday and Wednesday, while 10-year bond yields rose to 8.2 per cent, up from 5.6 per cent three months ago. From its 2014 peak in the spring of this year, the Greek stock market has tumbled 28 per cent; 10-year government bond prices have fallen 18 per cent.
For some time, analysts have cautioned reckless, enthusiastic American and other global fund managers that the ghosts of the Greek and overall crisis had not been banished, but those warnings fell on deaf ears.
The markets have expected the European Central Bank (ECB) to pursue quantitative easing (QE) by buying up Greek and other weak-nation eurozone bonds; Greek sovereign bond yields of a whopping 48.6 per cent in 2012 had become a distant memory.
The wake-up call came from Prime Minister Antonis Samaras, who has called a snap presidential election on Dec 17. If he fails to win sufficient support for his candidate, former European Union environment commissioner Stavros Dimas, a January general election is expected to follow.
The fear is that the radical-left Syriza party, now 6 per cent ahead in the polls, could come to power via an unstable coalition government. Syriza was the leading Greek party in the European parliamentary elections in May, as voters were angry about the stringent austerity measures required for a 245 billion euro (S$399 billion) bailout.
The market fears that in such a political scenario, Syriza would renegotiate repayment and interest on the nation's huge sovereign debt, now at 175 per cent of gross domestic product (GDP).
The Troika, comprising the European Commission (EC), the ECB and the International Monetary Fund (IMF), has already said that Greece - on course to exceed an agreed budget deficit of 3 per cent of GDP - has not instituted sufficient reforms to become eligible for a payout of the latest bailout.
Renewed concern about the possibility of Greek default on its debt means that local and foreign creditor banks, institutions and hedge funds would come under acute pressure, economists say. Moreover, Syriza politicians have already hinted that if the party came to power and Troika restrictions continued to be onerous, the nation could exit the euro.
Roger Bootle, head of Capital Economics, contends that a Greek crisis has been brewing for some time. The economy had improved slightly in recent months, even growing by 0.7 per cent, though this was from a very low base.
But since the beginning of 2008, the Greek economy has contracted by "a staggering 25 per cent", Mr Bootle said. Unemployment has fallen from a peak of around 28 per cent, but is still at 25.9 per cent; youth unemployment stands at more than 50 per cent.
"This is what happened to the US and Germany in the 1930s Great Depression. It is catastrophic!" he said.
He is concerned that markets will once again become wary of the eurozone; the worry is Italy, a significant economy that is experiencing negative growth and has government-debt-to-GDP of 133 per cent.
The markets have driven down Italian, Spanish and Portuguese bond yields to levels which have not taken into consideration fragile, recessionary conditions and high levels of debt, bond analysts say.
Political uncertainty will spread in the eurozone, with elections also due in Spain and Portugal next year.